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FAIR VALUE MEASUREMENT | 12 Months Ended
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Dec. 31, 2022
FAIR VALUE MEASUREMENT |
FAIR VALUE MEASUREMENT |
8. | FAIR VALUE MEASUREMENT
In accordance with ASC 820-10, the Company measures financial products, time deposits, derivative instruments, available-for-sale debt investments and equity securities with readily determinable fair value at fair value on a recurring basis. Equity securities classified within Level 1 are valued using quoted market prices that currently available on a securities exchange registered with the Securities and Exchange Commission (SEC), Shanghai Stock Exchange (SSE) or Hong Kong Stock Exchange (HKEX). Financial products, time deposits and derivative instruments classified within Level 2 are valued using directly or indirectly observable inputs in the market place. The available-for-sale debt investments classified within Level 3 are valued based on a model utilizing unobservable inputs which require significant management judgment and estimation. The equity securities without readily determinable fair value, equity method investments and certain non-financial assets are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. If an impairment or observable price adjustment is recognized on the equity securities during the period, the Company classify these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs. Assets measured at fair value on a recurring basis are summarized below (in millions):
|  | Fair Value Measurement at December 31, 2021 Using |  |  |  |  |  |  |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value at December 31, 2021 |
|  | RMB |  |  | RMB |  |  | RMB |  |  | RMB |  |  | US$ |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial products (Note 2, 7) |  |  | — |  |  |  | 22,857 |  |  |  | — |  |  |  | 22,857 |  |  |  | 3,587 |
Time deposits (Note 2, 7) |  |  | — |  |  |  | 19,807 |  |  |  | — |  |  |  | 19,807 |  |  |  | 3,108 |
Financial instruments (Note 2) |  |  | — |  |  |  | 14 |  |  |  | — |  |  |  | 14 |  |  |  | 2 |
Equity securities (Note 7) |  |  | 8,571 |  |  |  | — |  |  |  | — |  |  |  | 8,571 |  |  |  | 1,345 |
Available-for-sale debt investments (Note 7) |  |  | — |  |  |  | — |  |  |  | 3,354 |  |  |  | 3,354 |  |  |  | 526 |
Total Assets |  |  | 8,571 |  |  |  | 42,678 |  |  |  | 3,354 |  |  |  | 54,603 |  |  |  | 8,568 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exchangeable senior notes (Note 17) |  |  | — |  |  |  | 3,791 |  |  |  | — |  |  |  | 3,791 |  |  |  | 595 |
Financial instruments (Note 2) |  |  | — |  |  |  | 39 |  |  |  | — |  |  |  | 39 |  |  |  | 6 |
Total Liabilities |  |  | — |  |  |  | 3,830 |  |  |  | — |  |  |  | 3,830 |  |  |  | 601 |
|  | Fair Value Measurement at December 31, 2022 Using |  |  |  |  |  |  |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value at December 31, 2022 |
|  | RMB |  |  | RMB |  |  | RMB |  |  | RMB |  |  | US$ |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial products (Note 2, 7) |  |  | — |  |  |  | 15,893 |  |  |  | — |  |  |  | 15,893 |  |  |  | 2,304 |
Time deposits (Note 2, 7) |  |  | — |  |  |  | 25,166 |  |  |  | — |  |  |  | 25,166 |  |  |  | 3,649 |
Financial instruments (Note 2) |  |  | — |  |  |  | 70 |  |  |  | 48 |  |  |  | 118 |  |  |  | 17 |
Equity securities (Note 7) |  |  | 11,934 |  |  |  | — |  |  |  | — |  |  |  | 11,934 |  |  |  | 1,730 |
Available-for-sale debt investments (Note 7) |  |  | — |  |  |  | — |  |  |  | 2,601 |  |  |  | 2,601 |  |  |  | 377 |
Total Assets |  |  | 11,934 |  |  |  | 41,129 |  |  |  | 2,649 |  |  |  | 55,712 |  |  |  | 8,077 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exchangeable senior notes (Note 17) |  |  | — |  |  |  | 4,204 |  |  |  | — |  |  |  | 4,204 |  |  |  | 610 |
Financial instruments (Note 2) |  |  | — |  |  |  | 84 |  |  |  | — |  |  |  | 84 |  |  |  | 12 |
Total Liabilities |  |  | — |  |  |  | 4,288 |  |  |  | — |  |  |  | 4,288 |  |  |  | 622 |
The roll forward of major Level 3 I nvestments are as follows (RMB in millions):
|  | Total |
Fair value of Level 3 Investments as at December 31, 2020 |  |  | 2,856 |
Transfer into Level 3 |  |  | (35 | )
New addition |  |  | 704 |
Disposal of investments |  |  | (66 | )
Effect of exchange rate change |  |  | (44 | )
The change in fair value of the investments |  |  | (61 | )
Fair value of Level 3 Investments as at December 31, 2021 |  |  | 3,354 |
New addition |  |  | 86 |
Disposal of investments |  |  | (28 | )
Effect of exchange rate change |  |  | 152 |
Expected credit losses |  |  | (906 | )
The change in fair value of the investments |  |  | (57 | )
Fair value of Level 3 Investments as at December 31, 2022 |  |  | 2,601 |
Management determined the fair value of these Level 3 Investments based on income approach using various unobservable inputs. The determination of the fair value required significant judgement by management with respect to the assumptions and estimates for the revenue growth rate, weighted average cost of capital, lack of marketability discounts, expected volatility and probability in equity allocation. The significant unobservable inputs adopted in the valuation as of December 31, 2022 are as follows:
Unobservable Input |  |
Revenue growth rate |  | 2.5%-100%
Weighted average cost of capital |  | 13.5%-21%
Lack of marketability discount |  | 15%-30%
Expected volatility |  | 41%-68.05%
Probability |  | Liquidation scenario: 30% - 100% Redemption scenario: 10%- 45% IPO scenario: 0%~40%

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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